Environmental class actions and what businesses can do to protect themselves

read time: 7 mins

The outcome of the recent The Manchester Ship Canal Company Ltd v United Utilities Water Ltd case could give the public the opportunity to sue water companies through environmental class actions. 

This article looks into this case in detail, highlighting the key features of environmental class actions and advises what businesses can do to protect themselves.

Background of The Manchester Ship Canal Company Ltd v United Utilities Water Ltd case

One of the UK’s largest water companies appeared in the Supreme Court in early March, defending an environmental class action, where it argued that it should not be liable to private landowners and individuals for sewage released in UK waters 

The appeal forms part of a long-running dispute about discharges into the Manchester Ship Canal from sewers operated by United Utilities Water Ltd (‘UU’). After the owner of the canal (‘the Canal Company’) threatened to bring a private law claim in nuisance and/or trespass against UU in respect of discharges of foul water, UU commenced a claim for a declaration, to the effect that no such cause of action was available to the Canal Company, absent an allegation of negligence or deliberate wrongdoing.

The essence of UU’s argument was a contention that the proposed causes of action were impliedly ousted by the Water Industry Act 1991, which provides a statutory enforcement mechanism for breaches of duty by sewerage undertakers.

At first instance, the judge of the English High Court, found in favour of UU. The Court of Appeal dismissed the Canal Company’s appeal, essentially on the basis that the case was indistinguishable from Marcic v Thames Water Utilities case, in which the House of Lords held that Water Industry Act 1991 precluded private law claims by a landowner in respect of escapes of sewage into his garden. 

The Court of Appeal rejected the Canal Company’s argument that it was a material point of distinction that the present case concerned discharges of sewage into a waterbody, rather than escapes of sewage onto land, notwithstanding the terms of some provisions in the Water Industry Act 1991 (notably s.117(5)-(6)) that apparently sought to preserve the ability to advance private law claims flowing from the discharge of foul water into waterbodies. Such provisions had not been considered in the Marcic v Thames Water Utilities case.

An increase in the number of environmental class actions

The above legal challenge is one of a number faced by water companies and UK Government. The case could have significant implications for water companies and, if the Canal Company is successful, it may open up the opportunity for the public to sue them, through class actions, for polluting waters.

Class actions are a type of court action where multiple different parties can join together to bring an action as one. In many cases, the cost of bringing an action as an individual outweighs the potential recovery. Where parties join together to bring an action as one, then the costs/benefits analysis can be  more favourable for individuals, particularly where they are funded by a third party litigation funder.

In addition to fines and prosecutions, utility companies are increasingly vulnerable to class action claims. Customers are physically connected to utility companies networks and they have standard structures for charging households, making it easier for households to pass the legal tests for defining who is included in a ‘class’. 

There is precedent for this, where BT faced a £600 million claim for allegedly over-charging landline-only customers. There’s also the ‘diesel gate’ case against a number of car manufacturers that was heard in the High Court. Volkswagen later agreed to settle for £193 million plus £10’s millions in legal costs.

In September 2023, an environmental class action valued at around £330 million was brought before the Competition Appeal Tribunal, directed against Severn Trent Water. It is thought that similar claims amounting to around £500 million will be brought against Thames Water, United Utilities, Anglican Water, Yorkshire Water and Northumbrian Water. 

The claim, brought by Professor Carolyn Roberts on behalf of the consumers affected, alleges that water companies in England have abused a dominant market position by under-reporting the number of pollution incidents they have caused by spilling or discharging sewage into waterways. It’s claimed that, had the number of pollution incidents been accurately reported to the Environment Agency and the Water Services Regulation Authority (Ofwat), then the water companies would have missed their pollution targets which would have led to Ofwat penalising the companies by requiring money to be returned to customers in the form of lower bills.

The key features of environmental class actions

Environmental class actions can target a number of bodies and practices. They may be raised with a view to forcing or preventing a particular action, for example requiring measures to be taken to reduce carbon emissions. However, the actions can be raised to influence and increase pressure on policy making bodies to take positive steps.

Actions are often brought against governments or other public sector bodies by way of judicial review or on the basis of failure to comply with international treaties, notably the Paris Climate Agreement. Those bringing the action will typically seek an order from the court that the government is in breach of its obligations and remedies to prevent or mitigate the environmental damage. This could be an order preventing the government from going ahead with climate-damaging proposals or requiring it to disclose steps it is taking to achieve climate-related goals, such as reducing emissions. 

However, it’s not only public institutions that should be concerned about the risk of climate change class actions. A number of private companies have also found themselves in the spotlight in recent months, for failing to disclose information to shareholders relating to climate change risks and effects. Lack of compliance with reporting obligations, or indeed other climate measures, could also constitute a breach of directors' duties given the associated risks to a company's financial performance. 

Examples of recent class actions can be found in Australia, against both the government and private companies. With the increasing need for corporate reporting on environmental risks in the UK, it seems inevitable that shareholder class actions will soon become more common.

Another way private companies may be targeted by class actions is if they are ‘greenwashing’, which occurs where organisations are said to have misrepresented or exaggerated the environmental credentials of their products or conduct. 
Companies are particularly likely to face environmental or climate change actions by way of class action, as it is often large groups of individuals, such as shareholders or consumers, who are affected. They may not be inclined to raise such an action individually, but may be inclined do so in conjunction with others to share the cost and effort.

What are the risks to businesses?

There are clearly financial implications for businesses as a result of the increased threat of environmental class actions. Where in the past claims could have only been raised individually, and therefore would likely have been for lower value or not pursued, the ability of claimants to join together to bring them as a class action now opens the door to high value, complex claims. These are much wider in scope and therefore more expensive to defend.

Class action claims increasingly attract press coverage than less publicised individual claims, carrying a greater risk of reputational damage. Particularly in the age of social media and environmentally-aware consumers, businesses need to be alive to the impact that a high-profile environmental class action could have on their brand.

What can businesses do to protect themselves?

There are some key steps businesses can take now to help mitigate against any future risks of such actions arising:

  • Ensure good governance structures are in place, particularly with regard to mandatory reporting on environmental risks. You should also provide training to staff on their responsibilities.
  • Review publicly available documents and branding/marketing materials to ensure they are accurate and do not misrepresent environmental credentials.
  • Have a dedicated action plan in place should a class action be raised against you, which covers PR and insurance considerations. For example, do your insurance policies cover class actions?
  • Engage lawyers as early as possible if a class action is anticipated/being threatened against you.

For further information, please contact the business risk and regulation team.

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